GORDON Davis says AWB will be a significant player in wheat’s new world.
But while it will be hungry for tonnes and looking for volume for its pools, he said market share no longer had any relationship to success.
“We have never set a market share target because in a competitive environment that’s an invitation to take risky trading positions and lose lots of money.
“In terms of your own cash book … you need to match up the ability to identify profitable trading opportunities, the ability to fund them and the overall risk appetite on the balance sheet – that for us is the amount of capital we have in Landmark, the amount we’ve got in financial services, and the amount we’ve got in commodities – and that’s not unlimited,” Mr Davis said.
“We will have a disciplined cash book and then beyond that I suppose you can use your strength in origination to originate for other people as an agent.”
Mr Davis has met with most of AWB’s major customers in the past six months – “and to a man they want us to be a competitive, competent exporter because that’s what they’re used to”.
Some overseas customers had used AWB like a supply department and relied on the pool to produce a shipment every four or five months to meet their demands – and would be looking to them to try and provide a similar service.
“That said, it will be an extremely competitive environment. The global multi-nationals – the Bunges, the Cargills, the Glencores – they’re not slouchers and they’ll be trying to get their share of the market.”
Mr Davis said AWB’s success in this new world hinged on being competive – a factor currently hindered by an unwieldy governance structure and one the board will be seeking to have changed at an August 21 general meeting.
While a similar motion failed to get the necessary votes at AWB’s February AGM – it achieved majority shareholder support but it needed 75pc support of those who participated to pass – Mr Davis said the external environment was now far more clear.
He said AWB was now the only company on the Australian Securities Exchange (ASX) with an entrenched governance right to a particular group of people.
“We have a lot to offer in a deregulated market but we’ll be going into the market with one hand tied behind our back if we’re going in with an anachronistic governance structure,” Mr Davis said.
He said the company’s governance structure was a significant stumbling block to investors, particularly the big institutions.
“As one investor in New York who’s a big investor in Aust-ralian agriculture and has equity in a number of agricultural stocks, said to me recently – ‘Your constitution is a showstopper’,” Mr Davis said.
“And why is it important to have institutional investors? Capital.”
He said like any farm enterprise, the business had debt-to-equity ratios and the more it leveraged on its debt, the more finance cost and the less competitive the business became.
Mr Davis said the current structure had its strengths for the single desk.
“But the single desk is gone – and I find it difficult to find any rational reason to keep that structure going forward.”
Mr Davis said there was a factual base for what AWB was trying to do and an agripolitical agenda trying to perpetuate “a grower gerrymander” and these were quite different things.”
Mr Davis said the most important thing to growers was achieving the best return for their wheat – a fact that was made clear in the past two seasons when NSW growers delivered less than 1500t into the national pool, opting instead to sell into the drought-inflated domestic market.
“If we don’t have the right governance structures, the right constitutional structures, the right access to funds, we won’t get wheat, and over time we won’t be as competitive.”
“I think growers have to ask themselves the question over the long-term is it in their interests to have an AWB that’s got a low capital cost, that’s competitive, that’s offering them marketing options or are they trying to perpetuate some sort of agripolitical structure that was appropriate in the past but has no currency going forward?”
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